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Tips from angel investor, Hemant Kanakia
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His Ph.D advisor, David Cheriton, was one of the early investors in Google. “He wrote a cheque for $1 million and made billions in the bargain,” says Hemant Kanakia with a wide grin.
Maybe watching that smart angel investment move by his Stanford professor inspired Kanakia's own shift from being a successful entrepreneur to angel investing.
This IIT Bombay alumnus, who did stints with TCS and Bell Labs, says he started out on his own mainly to stop the long commute from Washington DC to New Jersey. “My wife took up a teaching job in DC and instead of doing the commute, I decided to start my own enterprise,” he says.
In 1996, he founded Torrent Networking Systems, a company that built a next generation of fast Internet Routers. Within three years, Ericsson acquired the company for $450 million. “The investors who had funded my company exited making 50 X on their investment,” says Kanakia.
With two such stirring examples, it was not surprising that Kanakia should get into angel investment mode himself. In 2004, he joined Columbia Capital LLC, an east coast of US-based venture fund managing $2.4 billion funds focused on telecommunications and technology space. “I co-founded several enterprises too,” says Kanakia.
In 2009, again it was his wife's job decision — she decided to take up an assignment in India with NCAER — that forced Kanakia to rejig his own business plans. He came to Delhi and became part of the Indian Angel Network. He also has his own investment fund, KanakiaVentures LLC.
So, what's the difference in being part of a network and investing solo?
“I think a network helps bring different types of capabilities on board. For instance, I rate myself as very tech savvy, but I am not necessarily very good on sales and marketing – so the other person in the network could watch out for those aspects,” says Kanakia. The other thing he says is that being part of a pool of people makes investigating a company easier. “Two people in the network can take a lead in due diligence,” he says.
4 GROUND RULES
What does he look for when an entrepreneur makes a pitch?
There are four ground rules, says Kanakia.
“One, I invest in an individual rather than anything else. Of course there is the intellectual property and the merit of an idea and all that. But I believe, it's the people who are the success factor. I look for a street smart person – not in the pejorative sense – but in the sense of having common sense. It does not matter if he is a top ranker or not,” he says.
“Second, the person I invest in must be motivated for large success – you need a person who wants to conquer the world and not be satisfied by achieving little success, maybe acquire a big flashy car and be happy.”
“Third, the person should have demonstrated leadership qualities — the ability to inspire others to work hand in hand.”
“Finally, I like people who are good listeners,” says Kanakia.
And how many meetings are needed to ascertain all these? “Usually three meetings,” he says. “It doesn't take much time, but takes a lot of experience to spot these qualities — it comes from throwing unexpected questions and watching how they react,” he says.
And how soon would investors like him exit? “It's a question of risk appetite as well as how much time you want to hold in a firm. For me 5X is good enough,” he says.
The good news for entrepreneurs, says Kanakia, is that a surprising number of people in India are today willing to act as angels.
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